Pension funds and mortgage lenders are being brought together here under a program intended to channel more capital into the mortgage market.
Known as the Community Mortgage Trust, the program is being developed by the Homebuilders Association of Greater St. Louis and Mercantile Trust Co. of St. Louis.
"This is probably the first time there has been a concerted effort to bring various lenders together with various pension funds and to try to mix and match their needs," said Beth Van Houten of the Federal National Mortgage Association (Fannie Mae), which will be creating the first mortgage-backed securities for the program.
Van Houten said it was similar to "what we did in Maryland when we first opened our mortgage-backed securities as a financing vehicle for new mortgages last March." In that instance, one pension fund, the Maryland State Retirement System, purchased a Fannie Mae security created from a pool of mortgages on new homes in the state made by a single lender, Loyola Federal Savings and Loan.
However, in St. Louis, mortgage-backed securities from a number of local lenders will be purchased by Mercantile Trust and managed as a collective pension trust fund on behalf of participating pension funds. All penions funds, not just those administered by Mercantile Trust, will be allowed to purchase shares of Community Mortgage Trust.
"We will be putting together packages that are attractive to S&Ls and that have a competitive rate for us," said Edmund J. (Jerry) Thimme, senior vice president of Mercantile Trust.
"We've talked to Fannie Mae and Freddie Mac Federal Home Loan Mortgage Corp. , and they're agreeable to it," he added. "We've also talked to some private mortgage companies who think there is an opportunity for them. So we may also be working with some of the private mortgage security issuers."
"This might be a prototype for other areas," commented Van Houten.
About eight financial institutions and mortgage bankers as well as several pension funds have already expressed interest in participating in the St. Louis program, according to Thimme.
"We're expecting a $25 million investment in the first year, but it could grow to $50 million," he said. "Our target will be the 350 to 400 pension funds in the state that have assets of more than $1 million, specifically trade union pension funds, public pension funds, those with vested interest in the promotion of the housing industry. We're trying to get money into the residential mortgage market."
Initially, mortgages will be limited to the greater St. Louis area but eventually will come from throughout Missouri, Thimme said.
Mercantile Trust would receive commitments from pension funds and then funnel these to mortgage lenders so that they will have a known source of funds, explained Tom Farnam, director of the program.
Farnam noted that the program touches the new role savings banks and savings and loans associations are playing in the mortgage industry.
"S&Ls are coming closer to the traditional role of a mortgage banker and being an originator/servicer and not necessarily doing loans for their own portfolio," he explained. "It's a program that has a lot of long-range possibilities. It would not just solve an immediate problem, but create a long-term relationship between mortgage lenders and pension funds."
Farnam said Community Mortgage Trust also could purchase mortgage-backed securities from the National Association of Home Builders' two months old Home Mortgage Access Corporation (HOMAC), which will help package mortgages from homebuilders throughout the country for sale to traditional mortgage investers, such as Fannie Mae, Freddie Mac and private mortgage insurance companies.
"I can see these programs operating in a symbiotic relationship in the future," Farnam commented. "We will be operating at different points in the mortgage financing stream.
"Our program will concentrate on getting new capital into the mortgage market place," Farnam added.